In this post on her blog, Econgirl nails on the head what I attempted to say in my recent post, keyenesian econmists misjudge the economy.
In her post, Econgirl has an imagined debate between philosopher Michael Sandel and a group of economists. Here’s the pertinent exchange:
Sandel: The second limitation to market reasoning is about how to value the good things in life. A deal is economically efficient if both parties consider themselves better off as a result. But this overlooks the possibility that one (or both) of the parties may value the things they exchange in the wrong way.
Every Economist Ever: The “wrong way?????” Who in the hell are you to tell people what they “should” be valuing? Some economists may try to account for tastes, but none of us are presumptuous enough to tell anyone what their tastes should be.
I disagree with Econgirl that ‘Every Economist Ever’ would have that response.
The point I tried to make in my post is that keynesian economists are presumptuous enough to tell people what they “should” be valuing when they see what they call ‘aggregate demand’ fall.
Rather than considering why aggregate demand fell (i.e. the reasons folks are spending and investing less), they simply assume it is bad (a presumptuous subjective value judgement) and the government must override the will of all of those people.
Rather than considering that aggregate demand fell because people are being more careful with their money (because they no longer have banks willing to loan them money on their bad credit), or foresee more uncertainty in the future (because government has taken an active role in arbitrarily changing the rules), or are changing what they value (since they longer get easy loans, they stop buying things like singing fish), they just assume that they are right and everybody else is wrong.